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STRYKER CORPORATION: IN-SOURCING Pcbs Case Solution & Answer

STRYKER CORPORATION: IN-SOURCING Pcbs Case Solution 

Executive Summary

The case is about the optimal sourcing strategy that should be adopted by Stryker Corporation in order to mitigate various kinds of risks involving the strong dependency on the outside suppliers and simultaneously increasing the quality and supply of the products in order to maintain its strong brand position in the eyes of its customers in the overall market. The company is basically a medical technology based firm which is located in Kalamazoo, Michigan and generates significant amount of revenues from its three major segments which include the Stryker Endoscopy, Stryker Medical and the Stryker Instruments.

The company’s major products include implants which are used in trauma as well as joint replacement surgeries; endoscopic and communication systems; as well as other medical related products. In the year 2002, the company reported significant increase in its sales revenues of about 13%, the major portion of revenue is generated from its Stryker Instruments segment. This segment is manufactured in Puerto Rico, Ireland, Michigan as well as other global region.

These facilities require key product, in order to manufacture the medical instruments, which is Printed Circuit Boards in both good quality and quantity in order to timely supply the finished products all over the world. Due to this, the company relies on various suppliers for outsourcing PCBs however,the results were very unsatisfactory in meeting the demands of the customers efficiently.

Therefore, the company is aiming towards in-house production of PCBs which would help resolve various kinds of issues but in order to arrange funding for the said project, the company would be required to present its capital budgeting analysis in order to obtain approvals which would be conducted in this report. Due to the significant benefits associated with the given proposal and its associated quantitative analysis, it is strongly recommend that the company should make a GO decision.

Problem Statement

The issue identified by analyzing the case is that the company, in order to meet the demands of its customers and to operate the most significant revenue generating segment that is Stryker Instrument Segment, strongly requires a key component, PCB, which is majorly used in each product. In order to do that, the company tried for that the company to outsource it from the various contract suppliers however,due to unsatisfactory results with regards to the quality and timings, the company is considering a proposal to in-source PCBs by starting an in-house production which requires budgeting analysis in order to obtain funding for the project.

Qualitative Analysis of the Situation

The case presents the three alternative options in order to effectively resolve the underlying issues faced by the company that requires the detailed analysis which is summarized below:

Option: 1

Maintain the Status-Quo and rely on the current sourcing strategy but with the modification of acquiring PCBs in sufficient quantity prior on time that could help resolve the issue of timely meeting the customers’ demand without any delay.

Merits

  • Availability of key product in sufficient quantity for production.
  • Meet the demands of the customers on time.
  • Will not require additional funding as in the case of option # 03.
  • The overall operations of the company will not be disturbed because for each finished goods, PCBs are the key raw material of the company.

Demerits

  • It will not provide permanent solution for the company.
  • The forecasting of the future requirement is difficult to anticipate.
  • By ordering less quantity of PCBs, the supply of the finished goods would be restricted.
  • By ordering more quantity of PCBs, the profitability as well as liquidity position of the company would be affected.
  • The company, by relying heavily on its current outsourcing strategy,would not be able to achieve the quality products for its customers.

Therefore, by looking at the above detailed explanation of option # 01 for the company, it can be seen that the demerits associated with this alternative significantly outweigh its associated merits. This strongly concludes the fact that this option is not feasible for the company asit does not help resolve the existing issue faced by the company.

Option: 2

Establishing a strong partnership relationship with the single supplier which could increase reliability.

Merits

  • The company could meet the demand of customers on time.
  • Would be able to supply PCBs to its various manufacturing units solely.
  • With the help of partnership, the company could improve its future prospects.
  • The high quality goods could be ensured.

Demerits

  • Reliance on only one supplier could be highly dangerous and risky in the market where bankruptcy is not very uncommon.
  • Due to Monopoly Power, the supplier could charge high price for the products.
  • The single supplier would not be loyal to Stryker Corporation.

It can be seen from the above analysis that although the option is very feasible due to the quality, the quantity as well as the time period could be ensured and the customers could be easily satisfied in this option. However, due to the significant issue of strong reliability on just a single supplier that could be very risky and costly in the future, it could be said that this option is also not the feasible option for the company.

Option: 3

Shift from out-sourcing of PCBs to in-sourcing by starting an in-house production which would require capital spending in the beginning to earn required return. The in-house production could be started near the headquarters which is located in Kalamazoo, Michigan.

Merits

  • It can be seen that with the in-sourcing facility of PCBs, the company could enhance its overall performance with respect to meeting the demands of the customers in a timely fashion. Moreover, good quality as well as good quantity could also be ensured because of the company’s significant control over production process. With the help of this alternative, the company could significantly increase its efficiency by simultaneously reducing its cost relates to losses which might occur in the logistics.
  • With the help of in-house manufacturing, the company would be able to increase its flexibility in producing the required number of output quantities thatdepend on the frequency of orders, which could help the company in maintaining strong customer loyalty as against to its competitors. Flexibility here means that the company cannot only change the quantity of production but increases the speed of production…………………

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